Another look at the role of the industrial structure of markets for international diversification strategies
This paper re-examines the extent to which gains to international diversification are due to differences in industrial structure across countries. Recent papers by Roll (1992) and Heston and Rouwenhorst (1994) investigate this issue and find conflicting evidence. Using a new database, the Dow Jones World-Stock Index, with coverage in 25 countries and over 66 industry classifications, we find that while country effects dominate industry effects, the variance of industry effects comprises a substantial proportion of the total variation in international index returns. Global investors that ignore the industrial mix of the portfolios in which they invest can limit their potential diversification benefits in an economically important way.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rene M. Stulz, 1994. "International Portfolio Choice and Asset Pricing: An Integrative Survey," NBER Working Papers 4645, National Bureau of Economic Research, Inc.
- Jun-Koo Kang & Rene M. Stulz, 1995.
"Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan,"
NBER Working Papers
5166, National Bureau of Economic Research, Inc.
- Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
- Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
- Mervyn King & Enrique Sentana & Sushil Wadhwani, 1990.
"Volatiltiy and Links Between National Stock Markets,"
NBER Working Papers
3357, National Bureau of Economic Research, Inc.
- King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July.
- K.C. Chan & G. Andrew Karolyi & Rene M. Stulz, 1992.
"Global Financial Markets and the Risk Premium on U.S. Equity,"
NBER Working Papers
4074, National Bureau of Economic Research, Inc.
- Chan, K. C. & Karolyi, G. Andrew & Stulz, ReneM., 1992. "Global financial markets and the risk premium on U.S. equity," Journal of Financial Economics, Elsevier, vol. 32(2), pages 137-167, October.
- Roll, Richard, 1992. " Industrial Structure and the Comparative Behavior of International Stock Market Indices," Journal of Finance, American Finance Association, vol. 47(1), pages 3-41, March.
- G. Andrew Karolyi & Rene Stulz, . "Why do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements using ADRS," Research in Financial Economics 9501, Ohio State University.
- Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
- Kennedy, Peter, 1986. "Interpreting Dummy Variables," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 174-75, February.
- Bekaert, Geert & Harvey, Campbell R, 1995.
" Time-Varying World Market Integration,"
Journal of Finance,
American Finance Association, vol. 50(2), pages 403-44, June.
- Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-79, June.
- Lessard, Donald R, 1974. "World, National, and Industry Factors in Equity Returns," Journal of Finance, American Finance Association, vol. 29(2), pages 379-91, May.
- Bae, Kee-Hong & Andrew Karolyi, G., 1995.
"Good news, band news and international spilovers of stock return volatility between Japan and the U.S,"
Pacific-Basin Finance Journal,
Elsevier, vol. 3(1), pages 144-144, May.
- Bae, Kee-Hong & Andrew Karolyi, G., 1994. "Good news, bad news and international spillovers of stock return volatility between Japan and the U.S," Pacific-Basin Finance Journal, Elsevier, vol. 2(4), pages 405-438, December.
- Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
- Cooper, Ian & Kaplanis, Evi, 1994. "Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 45-60.
- Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
- Guenther, David A. & Rosman, Andrew J., 1994. "Differences between COMPUSTAT and CRSP SIC codes and related effects on research," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 115-128, July.
- Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-57, March.
- Clarke, Richard N, 1989. "SICs as Delineators of Economic Markets," The Journal of Business, University of Chicago Press, vol. 62(1), pages 17-31, January.
When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:50:y:1998:i:3:p:351-373. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.